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2d 136
71 A.F.T.R.2d 93-2182, 93-1 USTC P 60,131
This appeal, by the estate of David N. Marine, from a decision by the United
States Tax Court, raises the issue of whether the discretion vested in Marine's
personal representatives by a codicil to Marine's will, which allowed the
representatives to make posthumous gifts to certain individuals who contributed
to Marine's well-being or were helpful to him, made the charitable remainder
unascertainable and not deductible as a charitable gift.
I.
3
David N. Marine, M.D. was educated at Princeton University and at the School
of Medicine of Johns Hopkins University. In 1970, at the age of 46, Marine left
a successful career in internal medicine and retired to his home in Oxford,
Maryland.
On August 21, 1982 Marine executed a codicil to the will which deleted the gift
to Whitby and added a new clause which read as follows:
7
EIGHTH:
I empower my Personal Representatives, in their sole and absolute
discretion, to compensate persons who have contributed to my well-being or who
have been otherwise helpful to me during my lifetime by allocating to each of them
such items of tangible personal property, or by transferring securities, or by giving
them cash, or any combination of tangible personal property, securities or cash, as
my Personal Representatives determine is a fair bequest for services rendered. My
Personal Representatives shall take into account the length and nature of such
services and the spirit with which such services were rendered on my behalf
throughout the period of such contribution to my well-being. No single bequest,
however, shall exceed one percent (1%) of my gross probate estate, but may be
considerably less. The decision of my Personal Representatives as to both the
amount of a bequest and what it shall consist of shall be final.
8
The tax court found that Marine executed the codicil partly as an incentive to
induce his longtime housekeeper to stay in his employ. It found he was also
motivated by a desire to reward others who had or might yet provide services to
him during his lifetime. Marine died on November 14, 1984.
9
The will and the codicil were filed for probate with the Orphans' Court for
Talbot County, Maryland. William H. Price, II and Alice B. Nily, a longtime
friend of Marine, were appointed personal representatives. In accordance with
Marine's will and codicil, they made bequests to the housekeeper, Ms. Whitby,
and Bartels, Marine's friend and guardian. Whitby received $10,000 and Bartels
received $15,000. These were the only bequests made under the discretion
provided in paragraph Eighth of the codicil.
10
On July 23, 1985 Price and Nily filed the federal estate tax return. It listed a
gross estate of $2,594,455.49 and a deduction of $2,105,081.12 for the residue
bequeathed to Princeton and Johns Hopkins.
11
In a letter dated July 19, 1988 the Commissioner of Internal Revenue ("the
Commissioner") notified the estate that it was disallowing the deduction for the
charitable bequest to the schools. The notice stated:
12is determined that on the date of death the value of any beneficial interest in
It
property transferred to charity was not then presently ascertainable, and even if such
interest had been ascertainable, the legatee, devisee, donee or trustee was
empowered to divert the entire property to a use which would have rendered it not
deductible had it been directly so bequeathed, devised, or given by decedent.
Therefore, the indicated charitable deductions are not allowable.
13
II.
14
15
There is no dispute that Princeton University and the Johns Hopkins University
are both legitimate recipients of 2055(a)(2) gifts. To be deductible as a
charitable gift, the value of a testamentary remainder interest must be
"presently ascertainable, and hence severable from the non-charitable interest."
Treas.Reg. 20.2055-2(a) (as amended in 1986).
16
17
18 principal that could be used was only so much as might be necessary to continue
The
the comfort then enjoyed. The standard was fixed in fact and capable of being stated
in definite terms of money. It was not left to the widow's discretion. The income of
the estate at the death of the testator, and even after debts and specific legacies had
been paid, was more than sufficient to maintain the widow as required. There was no
uncertainty appreciably greater than the general uncertainty that attends human
affairs.
19
Id. at 154, 49 S.Ct. at 291. Because there was a fixed standard, the Court found
that the remainder was ascertainable at the date of death and the charitable
remainder was deductible.
20
Ascertainability at the date of death of the amount going to charity is the test.
To be "presently ascertainable" the power of the trustee to divert the corpus
from the charities must be restricted by a fixed standard. In Merchants Bank of
Boston, Executor v. Commission of Internal Revenue, 320 U.S. 256, 64 S.Ct.
108, 88 L.Ed. 35 (1943), the Court was faced with a will which created a trust,
with the income going to the widow for her life, and upon her death all but
$100,000 of the principal was to pass to certain charities. The trustee was
authorized to invade the corpus,
21such time or times as my said trustee shall in its sole discretion deem wise and
at
proper for the comfort, support, maintenance, and/or happiness of my said wife, and
it is my wish and will that in the exercise of its discretion with reference to such
payments from the principal of the trust fund to my said wife, May L. Field, my said
trustee shall exercise its discretion with liberality to my said wife, and consider her
welfare, comfort and happiness prior to claims of residuary beneficiaries under this
trust.
22
23
The Court held that the extent to which the principal might be used was not
restricted by a fixed standard, and
24
Introducing
the element of the widow's happiness and instructing the trustee to
exercise its discretion with liberality to make her wishes prior to the claims of
residuary beneficiaries brought into the calculation elements of speculation too large
to be overcome, notwithstanding the widow's previous mode of life was modest and
her own resources substantial. We conclude that the Commissioner properly
disallowed the deduction for estate tax purposes.
25
26
27
448 F.2d at 944. It is the lack of a definite standard that makes the amount of
the charitable bequest under the Marine will uncertain and unascertainable.
III.
30
We hold that the language of the codicil, giving the personal representatives
"sole and absolute discretion" to reward those who had been helpful to Marine
during his life, established no real standards. The personal representatives had
virtually unlimited authority as to the number of gifts, although the amount of
each bequest was limited to one percent of the corpus. Since the number of
such bequests was unlimited and a standard for determining the amount of a
bequest was uncertain, the amount of the charitable bequest could not be
ascertained at the time of death and the deduction is not available. The tax
court was correct in its determinations.
31
AFFIRMED.